Non-Farm Payroll Implications for FX Traders


It's common to have a client call into a brokerage and asked why a currency pair has moved soo much. The short answer is often that there has been a news release but that's not a fair answer because there's more than meets the eye in a news release. This article will explain what is NFP and the implications for forex traders.

What is Non-Farm Payroll (NFP)

Non-farm payroll is a monthly statistic representing how many people are employed in the US, in manufacturing, construction and goods companies. It can also be known as non-farm or NFP.

NFP gets its name from the jobs that aren’t included: farmworkers, and those employed in private households or non-profit organizations. The data is usually delivered on the first Friday of any given month and is available with economic calendars like the forex factory. NFP can move several markets in a major way. 

There are several other key pieces of data involved in the non-farms release, including the unemployment rate, detail on sectors, average hourly earnings and revisions of previous releases. These are all also important to the markets.

Various analysts release predictions for NFP figures in advance of the actual release, causing a great deal of speculation in the lead up to each report. 

Like most fundamental news points in the marketplace, there are three sides to every NFP newsprint that FX traders need to understand. 

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Reading the News Print

First, there is going to be an expectation of the news release based on the trend in fundamental news announcements and any developments. The report itself is extremely large so most traders look for three or four key pieces of information.

Typically, whether the news release is good or bad, what causes traders to be confused about the move is two points. First, was this newsprint a large miss or confirmation of what was expected. As you can imagine, a miss from expectations will cause the currency to lose value whereas a confirmation or positive surprise will cause the currency pair to move higher. 

Traders will focus on the headline figure first and foremost. When the actual number is released the forex market and the stock market will move according to whether more or fewer jobs have been created, compared to expectations.

Given the scale and complexity of data, the Non-Farm Payroll Report is often subject to large revisions of the previous month’s headline. The Bureau of Labor Statistics also revises the month prior to the previous, known as the two-month net revision.

Another important data point is the unemployment rate, which is the percentage of the total labor force that is unemployed but actively seeking work. The figure moves in relatively small increments compared to the headline reading and movements as small as 0.2% in either direction can often be viewed as a large change.

Large fluctuations in wage inflation are often factored into the Federal Reserve’s decision-making, and the number of hours worked in the reporting period may also be monitored for changes or irregularities.

There are a number of factors to think about when trading U.S. Non-Farm Payroll Report, but with a little insight and thorough preparation, it is an event that offers numerous opportunities for traders.

>> How to Trade the news


Volatility is a fancy term that simply means prices moving aggressively relative to prior price history with less regard to direction. Due to the significance of nonfarm payroll for the US economy, a large beat or a large mass will often result in a decent amount of volatility. A result that is in line with expectations often disappoints traders who seek volatility for big moves to trade because the expectations are often priced in.

Future Interest Rates Direction

The Federal Reserve of the United States has kept interest rates at zero since late 2008. They are not the only central bank dealing with a sluggish economy but nonetheless, they are faced with the question when will he raise rates of the historically low floor and will the economy be strong enough to handle that rate hike? While one newsprint does not make a trend a series of non-farm payrolls showing strength or weakness has an impact on future interest rate decisions and what the market expects of the Federal Reserve view of the economy and how they're direct interest rates, which inevitably affects the value of the US dollar.

Analyzing the Aftermath of NFP

Before the Non-Farm Payroll is announced on the first Friday of every month at 8:30 AM Eastern a trader should be aware of a few things. First, you should know what the market expectations are for the announcement. Second, and more importantly, you should be aware of key levels on the chart like price ranges of a prior extreme or prior correction so that if the volatility of Non-Farm Payroll causes the price to go into that range you might find yourself with an opportunity on your hands.

Many traders decide to take the morning of Non-Farm payroll off because the volatility doesn't affect the overall trend and is often more harmful to their emotions than it is beneficial for the trading account. Whatever you choose to do, what is important is how the market reacts after non-farm payroll in relation to the larger trend, whether or not it is confirmed or if a key level of support or resistance is broken on the chart, which would likely only happen on a big news surprise. 

Trading the NFP

Forex Factory News Trader is a MetaTrader 5 expert advisor or Robot Forex developed to help Forex traders with news trading opportunities that arise during important macroeconomic releases of the forex factory economic calendar.

The Forex EA can be used to trade news volatility strategies. It is important to understand that Forex Factory News Trader is not a fully automatic solution — a trader has to set the date and time of the news release and also to decide on the appropriate stop-loss and take-profit.

However, ATR-based stop-loss and take-profit settings are available too. This Forex EA supports flexible position sizing in addition to the usual fixed position size. It is available and compatible with MetaTrader 5 AM Broker with ECN Technology. The reasons will be explained later.

>> Read more and download the news trader EA

Understanding how to read the NFP is important, but he best way to learn and practice how to trade the head and shoulders is to start playing around with them in a demo account. For example, MetaTrader 5 is the most popular trading platform that provides loads of charting tools and also allows you to place "play money" trades. Learn without risking any real money.

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